The nation’s dilemma: ‘It will take 200 start-ups to replace just one Dell’

16 Apr 2009

The property boom meant Ireland lost sight of its exporting potential. Now it’s time to get it back.

You wouldn’t have seen it five years ago, but perhaps it’s a sign of the times: 70pc of the 200 people who crowded into a recent National University of Ireland (NUI) Maynooth conference about technology transfer, research commercialisation and research and development (R&D) were owner-managers of Irish small to medium-sized enterprises (SMEs).

It was made resoundingly clear to everyone in the room that, in 2003, Ireland was at a crossroads: it could either pool all its efforts into being an innovative, export-led economy, or it could throw a lot of money into the attractive property market.

The nation chose the latter, and last week’s Budget was a reminder of the cross we all have to bear as a result. But it is now clear to even the dogs on the street that this country’s future is firmly in the hands of our entrepreneurs and indigenous businesses.

Speaking at the NUI Maynooth Connect event at Carton House, the former chief executive of Enterprise Ireland, Dan Flinter, cited a recent report in The Economist that said a vibrant university sector is vital to the creation of a strong economy.

Flinter said that with the strong tide of multinational investment coming into Ireland and a property boom, we skipped that chapter.

“That is no longer possible. Ireland’s physical infrastructure by 2010 will be impressive in terms of broadband growth and motorway routes. A substantial number of companies have emerged, and a small number of Irish multinationals are operating in a large number of markets.

“But, during the growth years, we forgot that long-term growth was linked inextricably to export performance. The growth years overshadowed the reality that small, open economies must grow exports and gain market share.

“Many Irish companies exist with the potential to produce world-beating products and services. They must be helped to continue marketing and selling. And, this time, they deserve our support.”

Aside from the property market, Dell’s decision to reduce its workforce in Limerick by 1,900 is a reminder of how mobile ‘mobile investment’ actually is.

Former Dell executive Jim Humphries — managing partner and head of the European arm of LGE Executives, a business of over 70 retired executives of global blue-chip companies, which helps new businesses to grow — painted a stark picture.

He cited research by University of Limerick’s Professor Eamon Murphy that pointed to Ireland’s present challenge: “It would take 200 new start-ups to replace just one Dell.”

Humphries, who ran Dell’s European Value Added Services Operations, which grew from $50m to $250m over a period of two years, said firms queuing up for support from Enterprise Ireland need to get the benefit of a faster support process.

“Under the current support process, only 36pc of firms that apply for support funding qualify on the first pass, a further 36pc qualify on the second pass and, eventually, 72pc of firms get accepted. But this means that 64pc of resources are wasted first-time round. If we need to do things fast, we can’t continue to live with these processes.”

Humphries called for better collaboration between university researchers and SME owners, urging them to march in “lockstep”.

Professor Erkko Autio, chair of Technology Transfer and Entrepreneurship at Imperial College London, and co-founder of the Global Entrepreneurship Monitor, was in Dublin recently where he spoke at the inaugural InterTradeIreland Innovation Lecture at University College Dublin, which was organised by NovaUCD.

Autio looked at the set of circumstances that led Ireland from being the envy of the economic world with the Celtic tiger miracle to today, where it is staring down the barrel of rising unemployment and a burst property bubble.

The real shame, he said, is how a misguided focus on asset-based growth, rather than innovation, was allowed to happen, and was even encouraged by the powers that be. According to Autio, Ireland began the century with a genuine lead over the rest of the world.

“Ireland is suffering at the moment, due to the fact that its growth model since 2003 onwards wasn’t sustainable. Growth was based on an inflating asset bubble and not productivity through innovation.

“In the end, what Ireland had was a pyramid scheme. In the end, all bubbles burst.

“It is regrettable that, during the first decade of a new millennium, Ireland was feeding this asset bubble. You have to blame those in power for allowing it to happen. This led to the erosion of a genuine advantage Ireland had with its globally oriented, skilled workforce.”

He cited a property crash in his home country of Finland in 1991 that, in tandem with the collapse of the Soviet Union, saw its export market flounder.

“Finland entered the most severe peace-time recession since World War II. Unemployment went from 3pc up to 16pc, and the contraction in GDP was 12pc in total.

“But what Finland continued to do throughout the recession was invest in R&D in terms of a public budget and research subsidies for industrial research. Finland not only maintained its R&D focus, but also increased it in real currency terms during the recession. That, to me, was the major reason why Finland came out of the recession.”

President of NUI Maynooth Professor John Hughes said great things can happen in a recession.

“Silicon Valley was created during a recession. The US military pulled a load of contracts and suddenly there were lots of out-of-work scientists. They banded together and created companies, and local universities played a role too,” he explained.

Going forward, Hughes said the Irish State should invest in encouraging greater business partnerships between universities and businesses. He cited figures from the Higher Education Funding Council for England where, from an initial investment of £600m sterling in 2001, a return of £10.3bn sterling was generated through knowledge exchange between universities and businesses.

“Basically, for every million pounds invested in the UK in college/business research, there’s a seven-fold return. The Government in Ireland has to do more in terms of incentivising businesses and academics,” Hughes said.

Bu John Kennedy

“Investment in innovation will lead Ireland out of a recession,” says Professor Erkko Autio (top right) of London’s Imperial College, while funding collaboration between businesses and academia could deliver a seven-fold return, according to former Enterprise Ireland chief Dan Flinter; NUI Maynooth president, John Hughes; and Iona Technologies co-founder, Chris Horn